Let Crest Appraisal Services help you determine if you can eliminate your PMI
It's widely known that a 20% down payment is common when purchasing a home. Considering the liability for the lender is often only the remainder between the home value and the amount outstanding on the loan, the 20% provides a nice cushion against the expenses of foreclosure, reselling the home, and natural value changesin the event a borrower defaults.
During the recent mortgage upturn of the mid 2000s, it was widespread to see lenders requiring down payments of 10, 5 or often 0 percent. A lender is able to handle the increased risk of the small down payment with Private Mortgage Insurance or PMI. PMI protects the lender if a borrower is unable to pay on the loan and the market price of the home is lower than what the borrower still owes on the loan.
Because the $40-$50 a month per $100,000 borrowed is lumped into the mortgage payment and many times isn't even tax deductible, PMI can be pricey to a borrower. Contradictory to a piggyback loan where the lender consumes all the damages, PMI is profitable for the lender because they collect the money, and they get paid if the borrower is unable to pay.
Does your monthly mortgage payment include PMI? Contact us, you may be able to save money by removing your PMI.
How homebuyers can keep from bearing the expense of PMI
The Homeowners Protection Act of 1998 makes the lenders on nearly all loans to automatically stop the PMI when the principal balance of the loan equals 78 percent of the primary loan amount. The law pledges that, at the request of the home owner, the PMI must be dropped when the principal amount equals just 80 percent. So, smart home owners can get off the hook sooner than expected.
It can take countless years to reach the point where the principal is only 20% of the original loan amount, so it's essential to know how your home has grown in value. After all, any appreciation you've achieved over the years counts towards removing PMI. So what's the reason for paying it after the balance of your loan has dropped below the 80% mark? Even when nationwide trends indicate plummeting home values, be aware that real estate is local. Your neighborhood may not be adopting the national trends and/or your home could have acquired equity before things calmed down.
The difficult thing for most homeowners to know is just when their home's equity goes over the 20% point. An accredited, licensed real estate appraiser can surely help. It's an appraiser's job to recognize the market dynamics of their area. At Crest Appraisal Services, we're experts at recognizing value trends in Seattle, King County and surrounding areas, and we know when property values have risen or declined. When faced with figures from an appraiser, the mortgage company will usually drop the PMI with little effort. At that time, the home owner can enjoy the savings from that point on.
Want to learn more about PMI and the Homeowners Protection Act? Click this link: